Evergy, Inc. — Q3 2023 Form 10-Q
Business context and reporting period
Unaudited results cover the quarter and nine months ended September 30, 2023, compared with the corresponding 2022 periods. Evergy is a regulated electric utility holding company serving approximately 1.7 million customers in Kansas and Missouri, with about 15,600 MW of owned generation capacity and renewable power purchase agreements. The filing presents Evergy, Evergy Kansas Central and Evergy Metro; Evergy manages its business as one segment.
Financial and operating results
Amounts below are in millions of dollars except per-share data and where noted.
| Evergy consolidated | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 |
|---|---|---|---|---|
| Operating revenue | $1,669.3 | $1,909.1 | $4,320.3 | $4,579.5 |
| Net income attributable to Evergy | $351.6 | $428.2 | $673.3 | $745.2 |
| Diluted EPS | $1.53 | $1.86 | $2.92 | $3.23 |
| Utility gross margin (non-GAAP) | $1,115.5 | $1,184.5 | $2,910.9 | $2,971.4 |
| Operating cash flow | — | $1,551.7 | $1,477.7 |
- Quarterly revenue fell 12.6%, net income attributable to Evergy fell 17.9%, and diluted EPS declined 17.7% year over year. YTD revenue decreased 5.7%, net income attributable to Evergy decreased 9.7%, and diluted EPS decreased 9.6%.
- Q3 utility gross margin, a non-GAAP measure, declined $69.0 million; YTD it declined $60.5 million. GAAP gross margin was $607.8 million for Q3 and $1,428.3 million YTD.
- Q3 revenue included a $96.5 million reduction for future customer refunds related to COLI rate credits. Lower sales amid unfavorable weather and JEC-related mark-to-market losses also weighed on margin; prior-year Sibley refund deferrals and new Missouri retail rates partly offset the decreases.
- YTD operating cash flow was $1,551.7 million. Capital expenditures were $1,657.9 million; the company also spent $217.9 million, net of cash acquired, on the Persimmon Creek wind farm. Cash and cash equivalents were $41.0 million at September 30.
- At September 30, total long-term debt, including current maturities, had a book value of $10,187.0 million. Notes payable and commercial paper were $2,178.4 million. Evergy had $819.9 million of available capacity under its $2.5 billion master credit facility. The $500 million Term Loan Facility is due in February 2024; its September 30 borrowing rate was 6.44%.
- Evergy reported interest expense of $136.8 million for Q3 and $393.6 million YTD, versus $102.3 million and $293.4 million, respectively, in 2022. The filing attributes the increase mainly to higher short-term debt balances and rates, plus new bond issuances.
Material changes and unusual items
- Evergy Kansas Central and Evergy Metro reached a unanimous September settlement in their Kansas rate case: a $74.0 million annual retail revenue increase for Kansas Central and a $32.9 million decrease for Metro. KCC approval was still pending; new rates were expected to take effect in December 2023.
- The settlement includes a $96.5 million refund to Kansas Central customers over three years for COLI rate-credit differences. The amount was recorded as a regulatory liability and reduced Q3 revenue.
- Kansas Central acquired the approximately 199 MW Persimmon Creek wind farm for $220.9 million, including incidental costs. The settlement provides for a levelized revenue requirement of $18.6 million annually for the first 20 years, subject to KCC approval.
- Depreciation and amortization increased $40.1 million in Q3 and $111.8 million YTD, primarily from capital additions and changes associated with rate-case depreciation treatment. O&M fell $13.0 million in Q3 and $104.1 million YTD.
- Evergy’s annual goodwill impairment test found fair value above carrying value; no impairment was recorded. The filing reports no material change in market-risk exposure since December 31, 2022, and no material change in risk factors since the 2022 Form 10-K.
Outlook, risks and contingencies
- The filing text does not provide a clear numerical full-year earnings or EPS guidance figure. Management states that available cash and credit capacity are sufficient for existing capital requirements.
- In November 2023, Evergy Missouri West agreed to purchase an approximately 143 MW interest in a Missouri natural-gas combined-cycle plant for about $60 million. The transaction remained subject to MPSC approvals and closing conditions; closing was expected in Q2 2024.
- Key regulatory and environmental uncertainties include potential EPA rules affecting emissions, regional haze, wastewater and coal-combustion residuals; management says some potential compliance costs could be material. Recorded asset-retirement obligations may require revision as regulations, monitoring results or closure estimates change.
- The February 2021 winter-weather securitization financing order for Evergy Missouri West was affirmed by the Missouri Court of Appeals in September 2023; a further appeal remained possible at the filing date. A final, nonappealable order is required before bonds can be issued.
- Other exposures include pending FERC matters concerning Kansas Central transmission-rate refunds, weather and demand variability, fuel and wholesale-market prices, interest rates, project execution, and counterparty and credit risks. Evergy and its subsidiaries reported compliance with applicable debt covenants.
Important facts for investors to verify
- Whether the KCC approved the Kansas rate-case settlement and when the new rates and COLI-related refunds took effect.
- Whether Kansas Central’s Persimmon Creek rate treatment was approved and whether the wind farm performs in line with the expected cost and resource plan.
- How Evergy refinanced or repaid the $500 million Term Loan Facility due in February 2024, and how short-term borrowing costs and availability evolved.
- Any subsequent appeal or bond issuance related to the winter-weather securitization, and outcomes of the pending transmission and environmental proceedings.
- How recurring earnings compare with GAAP results: 2023 adjusted EPS was $1.88 for Q3 and $3.27 YTD, versus GAAP diluted EPS of $1.53 and $2.92, respectively. Adjusted EPS is a company-defined non-GAAP measure.